Reasonable appreciation assumptions?

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kosomoto
Posts: 426
Joined: Tue Nov 24, 2015 8:51 pm

Reasonable appreciation assumptions?

Post by kosomoto » Thu Apr 12, 2018 3:53 pm

Hi all,

Thinking of buying a property in a decent area in California. Would it be reasonable to assume the property value will likely increase with inflation over the long run? I am not expecting anything more than 2-3% annually. Does historical housing data back up this assumption? From what I have seen on FRED it seems reasonable.

Tal-
Posts: 346
Joined: Fri Apr 22, 2016 10:41 pm

Re: Reasonable appreciation assumptions?

Post by Tal- » Thu Apr 12, 2018 3:59 pm

My view:

Long-term, housing price variability between markets will decline. And while the mean nation-wide housing price will increasing (probably at a rate slower than inflation, but on that order of magnitude), house prices in abnormally high and low markets will regress towards that mean.

Additionally, the value of each house will, on average, decline as it ages. This will often be offset by land values, but 50 years from now, I don't expect many of the 2018 new construction houses to fetch top dollar.

Today, when people buy houses in super nice, and super expensive areas, my personal view is that the purchase is at risk for being a negative long-term investment.

Sorry to be Debbie Downer, but those are my thoughts :)
Debt is to personal finance as a knife is to cooking.

barnaclebob
Posts: 2963
Joined: Thu Aug 09, 2012 10:54 am

Re: Reasonable appreciation assumptions?

Post by barnaclebob » Thu Apr 12, 2018 4:07 pm

Houses with character in great locations with good economies will probably continue to rise while mediocre suburbs with miles and miles similar houses built in the last 10 years could decline. Its all heavily connected to the local economy. In Seattle those suburb houses have gone up heavily since 2008, in further out St. Louis they might not be up to their 2008 levels still.

alex_686
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Joined: Mon Feb 09, 2015 2:39 pm

Re: Reasonable appreciation assumptions?

Post by alex_686 » Thu Apr 12, 2018 4:11 pm

Look up the Case-Shiller Housing Index. It has long term inflation appreciation of homes at between 0% to 1%. HCOL areas have broken this recently.

kosomoto
Posts: 426
Joined: Tue Nov 24, 2015 8:51 pm

Re: Reasonable appreciation assumptions?

Post by kosomoto » Thu Apr 12, 2018 4:22 pm

alex_686 wrote:
Thu Apr 12, 2018 4:11 pm
Look up the Case-Shiller Housing Index. It has long term inflation appreciation of homes at between 0% to 1%. HCOL areas have broken this recently.
Inflation as in nominal of 0-1? I took a look at the Shiller index and housing has outpaced inflation - which I would be more than okay with.

http://www.multpl.com/case-shiller-home ... -adjusted/

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